Abstract
This article investigates the effect of output volatility on output growth in Barbados, a small island developing state located in the Caribbean, based on data from 1976 through 2018. I conduct the analysis using the Stochastic Volatility in Mean model with time-varying parameters. The evidence suggests that output growth volatility, measured by stochastic volatility, negatively links with output growth at the aggregate level. I also examine disaggregate output data in order to understand this link better. The sectoral evidence suggests a positive link for services, a negative link for manufacturing, and a weak link for agriculture and the industrial sectors.
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